MPs slam tax credits system

IT performance still in question

UK Members of Parliament (MPs) have renewed their criticism of the troubled tax credits system, which overpaid £5.8 billion to claimants in its first three years of operation.

The tax credit IT system has been repeatedly hit by crises, contributing to overpayments to claimants totalling £4bn between 2003-04 and 2004-05. Since then the government announced changes to the tax credit scheme, while a series of changes have been made to the IT system.

Last year, paymaster general Dawn Primarolo told the Commons Treasury committee that the IT problems had largely been ironed out. "IT performance has been significantly improved. In total there have been 300 improvements made to the system since April 2005," she said, adding that a new software release in November 2005 had delivered "real improvements in operational performance".

But in its fourth report on tax credits, the powerful Commons public accounts committee (PAC) paints a picture of continuing overpayments and a lack of basic information about the payments being made.

The MPs' report notes that the overpayments total has now risen to £5.8bn over the first three years of the scheme, although changes are expected to eventually reduce overpayments by one third.

But HM Revenues and Customs (HMRC) "does not have complete information on the causes of overpayments and is uncertain about how far each measure will reduce overpayments", the report said.

The MPs' findings echo concerns raised in the Treasury committee's report of June last year that HMRC had no idea what role IT systems had played in the tax credits fiasco. "We have seen nothing from the department attempting to assess the contribution made by IT system error," the Treasury committee said.

The PAC's inquiry found that while the design of the tax credits system results in overpayments, "there have also been unforeseen overpayments due to software errors".

The committee's report say there were still 199 known software errors in the tax credit computer system in October 2005, but the "majority of these errors have since been resolved".

The report reveals that HMRC has already written off more than £500m of overpayments as unrecoverable and is "unlikely to recover" a further £1.4bn of debt.

"Tax credits suffer from the highest rates of error and fraud in central government, undermining HMRC's reputation for accuracy, fairness and proper handling of taxpayers' affairs," the report says.

But again, HMRC "does not have up to date information on levels of claimant error and fraud in tax credits". In 2003-04 between £1.06bn and £1.28bn was incorrectly paid to claimants -- between 8.8% and 10.6% of tax credit payments by value.

The tax credits web portal – now shut down – was a key opening for fraudsters, the report notes. "The design of the internet system for tax credits was deficient from the outset and left it vulnerable to attack by organised criminals," it said, adding that the system "did not conform to mandatory requirements on security" set down by the government's own e-envoy.

Committee chair Edward Leigh MP said: "This is the fourth time that this Committee has had to examine the current tax credits system – and it will not be the last. Billions of pounds, far more than those who thought up the system ever envisaged, are still routinely overpaid to claimants."

The report follows revelations last month that contractor Capgemini, which took over the Aspire IT contract from EDS in June 2004, had been forced to repay nearly £4.5 million to HMRC because of IT failures between July 2004 and January 2007, including 18 hours and 30 minutes of disruption to online services.